No More Tears For Johnson & Johnson

By Sham Gad | May 21, 2009 AAA

You know the economy is having a tough time of it if Johnson & Johnson (NYSE:JNJ) is feeling its effects. This may come as a surprise to many investors who are quick to assume that no company is being spared from the recession.

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While it looks like Johnson & Johnson may have a slower year in 2009, what will surprise most investors about Johnson & Johnson is the exact opposite. Every investor worth his salt should hold this company in high regard.
Numbers Don't Lie
While it appears that Johnson & Johnson will experience a sales decline in 2009, it will be the first for the company in 76 years. If profits decline, that will be the first such decline in 25 years. This is an unbelievable track record, and one that unequivocally proves that JNJ can weather the worst of economic storms.

Johnson & Johnson also has an compounded annual growth rate of 10.1 percent over the past 100 years. And at the time, the company was already 23 years old. Even "younger" companies like Procter and Gamble (NYSE:PG), Kraft (NYSE:KFT), and Kellogg's (NYSE:K), all of which sell a wide array of consumer staples, can't touch this record. It's simply phenomenal, and is one of the most overlooked facts in business to the masses. (For more, see A Guide To Consumer Staples.)

Follow the Smart Money
However, many of best investors are well aware of the company's outstanding performance. Warren Buffett's Berkshire Hathaway (NYSE: BRK.A, BRK-B) owns it. The "Buffett of Canada," Prem Watsa at Fairfax Financial (NYSE:FFH) owns a lot of it.

So, what have all these extraordinary numbers meant? For one, JNJ easily outperformed the market in 2008. But one year doesn't mean much. This does: a single share bought in 1944 at $37.50, when the company went public, assuming reinvested dividends, the value today would be approximately $900,000, an annual compound return of 17% over 64 years.

It's not Over
While the future returns of JNJ simply can not match the last six decades of performance, the company is in a very sweet spot today because its products have unlimited growth potential. JNJ is just now really penetrating China and India, and with products like Tylenol, Band-Aids, and baby shampoo, the opportunities are endless. And with a dividend yield of 3.5% and a payout that's as assured as anything in business, the company can easily reward investors.

Simple, but Not Easy
Warren Buffett has often remarked that investing is "simple, but not easy." It's simple in that you only need to find a few great companies to do well over time. It's not easy because many want to get rich quick. Find great businesses like JNJ, and you will do exceedingly well over time. (For more, see Riding The Bear Market Into A Bull Market.)

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